Trusts: Why Do We Need One?

One of the biggest mistakes that we see on contracts – whether they be residential land contracts, commercial land contracts or business contracts – is the failure to correctly identify one of the parties to the contract where one is a trust. Often a buyer of a property will say that the entity that is buying the property or business is the “Smith Family Trust”. The issue here is that the Smith Family Trust is not a legal entity.

To be a legal entity the “Smith Family Trust” must have a trustee, therefore the correct entity might be “John Smith as trustee for the Smith Family Trust” or “Smith Pty Ltd a trustee for the Smith Family Trust”. Not putting down the correct entity can make the contract invalid and allow either party to terminate for lack of certainty. This will mean that the agent will not receive their commission!

The reason for this is that a trust without a trustee is not a legal entity; the trust has the benefit of the property whilst the trustee has the legal ownership. One cannot exist without the other and this means that you need to have both in place to properly enter into a contract.

From a practical level we know that it can be difficult for some people to know the trustee off the top of their heads – let’s face it they have a lot on their minds and therefore they may struggle to remember these finer details. Often we have agents express their frustration on this point so here are some tips on how to easily obtain this information:

Firstly if you are preparing a contract where the seller is a trust and does not know the name then from your title search you will have the details that you need: “Smith Pty Ltd as trustee under instrument 705865486” will appear as the registered proprietor on the title search and is a perfectly acceptable way of listing the seller.

Secondly, a quick call by the buyer or the seller to their solicitor or accountant will quickly solve the issue as they should have those details at their figure tips.

Getting the right entity is essential to make sure that a contract is valid and binding and to avoid any transfer duty issues. If you have any questions please contact our office on 07 3667 8966.

The Value of Due Diligence

Buying property is usually the most important investment any person will make. Getting what you pay for and making sure that everything relating to that property is correct can save you thousands of dollars. Due diligence is the legal term that is given to the process in which a prospective buyer of a property investigates all aspects of the property to ensure that they are getting what they pay for.

A common misconception is that due diligence is a process that is undertaken by big property investors who are spending millions of dollars on their property. The truth is that every investigation that a property owner does in relation to the property that they are buying is a due diligence investigation.

Why is it important?

All too often we see buyers of property not get what they originally purchased. They buy a property and do not investigate all aspects of it, including whether all of the improvements on the property have the required local council approval or whether there are no encroachments. Due Diligence will allow a prospective buyer of a property to be to ensure that they:

Are getting what they are paying for;

Know all aspects of the property;

Do not have any surprise costs or problems that can be reasonably discovered from the due diligence investigations.

When are due diligence enquiries conducted?

More often than not the due diligence process will begin before a buyer signs a contract with it; the process begins with the physical inspection of the property. The majority of the searches and inspections occur after the contract is signed and can include:

Building and pest inspections – to ensure that the building does not have any obvious structural problems or pest problems;

Finance applications – to ensure that the buyer can obtain finance to purchase the property;

Independent valuations – to ensure that the buyer is satisfied that they are not paying too much for the property;

Searches of council records including ensuring that all of the improvements on the property that require council approval however the required final approval in place;

Survey of the property to ensure that there are no encroachments;

Where the property is part of a body corporate, review of the body corporate records to make sure that there are no known problems with the property that are recorded in the body corporate minutes; and

Other government searches including of the contaminated land register, to ensure that the property is not contaminated, the Department of Main Roads to ensure that the department has no interest in the property and other searches.

There are many different investigations that a buyer can undertake of a property and this is just a short list of the main investigations performed by normal buyers of property.

What needs to occur for a buyer to be able to do their due diligence investigations?

The standard REIQ contract and other contracts used in Queensland do not usually give a buyer much ability to undertake due diligence enquiries other than building and pest and finance standard conditions. If a buyer is concerned and wants to undertake further investigations then they need to insert special conditions that can cover these aspects of the purchase and allow the buyer to undertake these additional investigations.

A buyer should always be satisfied with a property to ensure that they are getting what they are paying for. Streten Masons can assist with the review and drafting of clauses that will allow buyers to undertake these investigations. If you require any assistance in this regard please contact Jeremy Streten on 07 3667 8966.

Joint Tenants vs Tenants in Common

By Jeremy Streten

Where you have more than one owner of a property they can either as joint tenants or tenants in common. The difference is a technical legal difference that can have ramifications on the owners of property. We often have agents contact us asking which one should apply in different circumstances; the truth is that the difference is a technical legal difference and should be left to buyers solicitor to determine.

It is important to note that as an agent, you do not need to worry about whether the buyer is buying the property as joint tenants or in tenants in common when drafting the contract. That does not form part of the contract and is something that the solicitor acting for the buyer can insert later.

If you are not aware of the difference the basic difference is that:

If you are tenants in common you own a certain percentage of the property, whether that be 50% or 99% and the other owner or owners own the other parts of the property;

If you are tenants in common if you die your share of the property is left as a portion of your estate;

If you are joint tenants with another owner or owners then you own all of the property with that other person or persons. There is no percentage ownership of the property;

If you are joint tenants then if you die the other owner takes the balance of the land upon your death; and

If one of the owners is a company or a trust then it must be tenants in common and cannot e joint tenants.

Joint tenants are usually used for a husband and wife buying a property whereas tenants in common are used where you have multiple investors, investing in a single property and who want to maintain a percentage ownership in the property.

As I said above, the actual ownership is usually something that is sorted out by the lawyer acting for the buyer and any questions should be directed to the buyers lawyer, however this article is designed to give you as an agent information so that you can at least discuss the different options with a buyer if you are ever asked.

If you have any questions in relation to this distinction, please contact me on 07 3667 8966 or Jeremy@smslaw.com.au.

Pitfalls when Purchasing a PropertyBuilding Approvals and Finals

Buying property is usually one of the most important investments you will ever make. Making sure that you get what you pay for is very important. While it is usually a condition of a residential purchase contract that the contract is subject to the Buyer obtaining satisfactory building and pest reports, the scope of this clause is often overestimated by Buyers.

Under the current Standard REIQ Contract for House and Residential Land (Fourth Ed) clause 4.1 states that a contract is conditional upon a Buyer obtaining a building report on terms satisfactory to the Buyer.

This provision is often misinterpreted by Buyers into thinking that any improvement on the property, such as a house, garage, shed or patio must have full approvals from their Local Council.

Clause 7.6 of the Standard Contract sets out the Sellers responsibilities in relation to requirements of authorities. The Seller is only responsible if a valid notice or order has been made prior to the Contract Date. This means that unless a Council has issued a notice or order regarding an unapproved or illegal structure, under the terms of the Contract, the Seller is not required to obtain any approvals or final certificates prior to Settlement.

Practically, this means that if finals have not been granted a Buyer is not able to terminate the contract or negotiate for a reduction in the purchase price.

This can become an issue in the future if you sell the home and the new contract includes a requirement to obtain building approvals and finals.

The information regarding these final certificates is found in local government searches (excluding rates) which range from $200.00 to $300.00 in Queensland. Given that most Buyers do not instruct solicitors to conduct these searches until the Contract has become unconditional, unfortunately often Buyers are unaware of the multitude of potential finals that they will become liable for.

We have noticed that this is becoming increasingly common as home owners conduct more and more DIY renovations. Home Owners may take on weekend jobs of adding a patio or shed to their property, without going through the formal approval process and obtains all necessary finals from their Local Council which may impact on future sales.

While this issue has become increasingly common, there is an easy solution. By the inclusion of a special condition addressing this issue, Buyers can stipulate that any Seller must provide final building approval certificates by Settlement.

As part of our service for the Purchase of a Property we are happy to review the terms of the Contract before it is signed to ensure that any concerns you may have are addressed.

If you wish to purchase a property and are concerned regarding additions made to the property ask your Real Estate agent to provide the unsigned contract to us here at Streten Masons Lawyers.

Charlotte StretenSolicitor

Buy 1 Give 1

Streten Masons Lawyers are a proud partner of the ‘Buy 1, Give 1’ program, which links businesses to a number of global aid programs across the world.